Businesses must file annual federal income tax returns by a set deadline. For partnerships and S corporations over a calendar year, the deadline is March 15 (for example, March 15, 2021, for the 2020 return); for calendar year C corporations and sole proprietorships, the deadline is April 15 (e.g. April 15, 2021, for the 2020 return). Businesses that cannot meet the deadline can get a filing extension. There is a lot of confusion about the rules that affect repository extensions.
Myths about extending taxes
Here are 5 myths… and the realities of plugin repository.
Myth: You need a good reason to request a deposit extension.
Reality: You don’t need a reason or give the IRS a reason when you request a filing extension. Common reasons extensions are used are missing records needed for return preparation, busy CPAs or other tax preparers, or just procrastination. Again, whatever the reason a business wants an extension, it is irrelevant to ask and get more time to file.
Myth: No action is required to get a deposit extension.
Reality: While some situations result in automatic extensions (explained later), in most cases to get an extension you must request one on or before the original return due date.
- C Corporations, S Corporations, and Partnerships use Form 7004 request an extension.
- Sole proprietors and independent contractors, who file Schedule C (or Schedule F for farmers) with their Form 1040 or 1040-SR, use Form 4868 or make an estimated tax payment indicating that it is an extension.
As mentioned, there are several situations where more time is automatically allowed to file a return; no request is necessary.
- Individual owners who live abroad have two additional months to deposit and can then request an additional four months.
- Due to COVID-19, the IRS has extended the 2019 filing deadline for individuals and C corporations in the calendar year from April 15, 2020 to July 15, 2020. There is unlikely to be any a similar automatic extension for 2020 declarations filed. during the 2021 filing season, but anything can happen, so watch the IRS for activity in this regard.
- The IRS may grant additional time for victims of federal disasters. For example, due to winter storms in Texas in February 2021, the IRS announced an extension until June 15, 2021 for personal and business income tax returns.
Myth: A filing extension gives you more time to pay your taxes.
Reality: A deposit extension avoids delaysdeposit penalties but does not extend the deadline paying taxes. For example, a sole proprietor, whose 2020 1040 form is due on April 15, 2021, can get an extension to file the return by October 15, 2021 and avoid late filing penalties. However, any tax unpaid on April 15 is subject to late payment penalties, which accumulate until actual payment.
Myth: An extension of the deposit increases the risk of being audited.
Reality: There is no tangible or anecdotal evidence that filing a report under an extension is an audit red flag. Returns on extension are treated the same as returns filed before the regular filing deadline. Although the IRS has not said it, it appears that an extension does not increase or decrease the chances of being audited.
Myth: An extension for filing a federal return automatically extends the deadline for filing a state income tax return.
Reality: In some cases, the federal filing extension acts to extend the due date for state income tax returns. However, the rules vary from state to state and separate action at the state level is required. For example, New-York requires C and S corporations to submit state forms, usually electronically, to obtain a six-month extension; it is the same for individuals and partnerships. Check state-level filing deadlines and rules for getting extensions if you want.
Think carefully about whether to get a deposit extension. If your business is an intermediary entity – an S corporation, partnership, multi-member limited liability company – an extension of the business declaration will delay the information needed by the owner to complete their personal declaration and will require another extension (the one here for the owner). Also, any taxpayer who expects a repayment probably shouldn’t delay filing as they are just extending the interest-free loan to the government. If you are unsure of deadlines, extensions, or other federal and / or state tax matters, contact a tax professional.